Given there are always plenty of people predicting a rather gloomy future for Somerfield, being invited to meet with executive chairman John von Spreckelsen at World's End seemed somewhat ironic. But there were no prophets of doom to be found at the newly refurbished Somerfield store on the King's Road in this particular part of Chelsea. Rather, it was an upbeat von Spreckelsen who was touring the new-look store, highlighting key features, and explaining why it all proved Somerfield was getting into shape.
Revamped stores such as the one at World's End form a vital part of Somerfield's growth strategy, details of which were released this week along with its full-year results. Not surprisingly, the City was keen to hear Somerfield's plans given the fact it recently rejected as opportunistic two takeover offers from a consortium led by John Lovering and Bob Mackenzie (see box).
"As a board we are convinced that keeping the company independent and implementing our strategy will deliver substantially better value than what was proposed," explains von Spreckelsen.
In truth, the new strategy contains few real surprises. Instead, it builds on the work von Spreckelsen initiated when he arrived at Somerfield in 2000. Back then, the priority was rescuing a deeply troubled business. Today, with the group back in profit, boasting a healthy balance sheet, and having come through a major management reshuffle, the challenge is how best to accelerate that recovery process.
But in such a competitive market, it's a huge challenge. Somerfield's same store sales growth was just 1% in its last financial year, compared with 1.8% in the previous 12 months. And that sluggish performance continues ­ with like-for-likes up 1.1% in the first nine weeks of its new financial year.
Nevertheless, von Spreckelsen is confident the group can get that figure moving quickly in the right direction by focusing on three key areas: its retail offer, its supply chain and IT, and its cost base.
"When you look at Somerfield it has a very valuable, but under-invested and, on balance, under-performing retail estate," he says.
That will all change, von Spreckelsen adds, as the group invests heavily in refitting its stores, improving ranges and making them location-specific, sharpening up pricing and promotions, and generally raising standards. It's all part of Somerfield's ambition to be the leading small format food retailer in the country, operating in what it sees as the only real growth segments in the grocery sector ­ convenience and top-up.
The group is clearly happy with the concept it has developed for stores operating under its Somerfield fascia. These stores, which target predominantly B and C1 shoppers, have a strong fresh food and convenience offer.
Including the World's End refurbishment, 100 stores have now had a refit. And von Spreckelsen says the results speak for themselves: stores in London, for instance, have seen sales rise by as much as 40%, although the average uplift is 20% in the first year, and 6% in the second.
The conversion work will continue at speed this year with a £70m programme now under way. All stores are due to have undergone a full refit by the end of 2006.
Over at Kwik Save, it has taken longer to get the right formula in place says von Spreckelsen. He admits the business stalled in the last financial year but says the new management team can bring the pace and experience needed to improve that performance. "We believe Kwik Save has enormous potential," he says, adding: "It's about getting the right retail format to increase the number of customers in store and to increase their spend."
He sees the chain complementing Somerfield by being a low priced neighbourhood food retailer targeting C2s and Ds. The Kwik Save store concept has been refined since the first one opened in Manchester a couple of years ago (see The Grocer, December 8, 2001). There are now 14 concept stores in operation, and with sales uplifts of up to 55% following their conversion, the group feels confident enough to press ahead with a £35m programme to refit 50 stores up to the middle of November, with a second batch due in the second half. Ranges have been overhauled, with the introduction of the Simply own label budget lines hailed as a "tremendous success".
"The new Kwik Save has a role to play in UK food retail," insists von Spreckelsen. "The stores sell a very comprehensive range, have very good fresh food, are easy to shop and offer outstanding value for money."
Von Spreckelsen is adamant that as these huge conversion programmes get into full swing they will provide an enormous step change in the group's like-for-like sales performance. And he adds: "What is also good with the refitted stores is that we enjoy better gross margins in terms of the shift to own label and fresh foods."
The company is aiming for operating margins of 4% at Somerfield and 2% at Kwik Save.
As well as driving organic growth, Somerfield is busily reconfiguring its estate to improve its productivity, looking to develop its forecourt and franchising operations, and is also not ruling out acquisitions (see p4 for details).
Inevitably, it's this heavy investment at the customer-facing end of the business that gets the most attention. But a five-year-plan to transform the group's "inefficient and antiquated" supply chain and IT is well on the way to completion. "We have two retail formats competing for different types of customer but the engine room requirements are the same," says von Spreckelsen.
Somerfield is also turning its attention to its cost base, with the target of saving £100m over the next three years, most of which will be passed on to shoppers. Part of that work will involve smarter working with suppliers to re-engineer own label products, he says. "If we can work with suppliers in a collaborative way to reduce the cost to us and to them, and then pass on the saving to the consumer, then that has to be a winning formula," adds von Spreckelsen.
Big question marks remain over whether the group's strategy will provide a formula for sustainable growth. But as von Spreckelsen surveyed the new Somerfield store at World's End, it was clear he does not share those doubts.